MUMBAI: Nine months after talks broke off between GVK Infrastructure and Singapore-based Changi Airports International (CIA) for a minority stake in the Indian company's airport business, both are back at the negotiating table.

Buttressed by the turnaround in the macro policy environment and regulatory clarity in airport tariff regimes, the talks were revived last December and have progressed since, said multiple sources aware of the development. The development - coming close on the heels of the ongoing Jet Airways-Etihad discussions - highlights the renewed interest of global aviation and airport development companies in India as an investment destination.

"There has indeed been a revival in the dialogue. After GVK reached out to them once again, Changi has expressed its intention to re-explore the potential partnership," said an official aware of the discussions.

Changi Airport Group's spokesperson Ivan Tan said the company does not comment on market speculation. GVK's spokesperson also refused comment.

A recent order of the Airport Economic Regulatory Authority has also helped the dialogue.

In January this year, AERA approved a 154% hike in the development fee for Mumbai International Airport Ltd (MIAL), a move that would help the operator recover its investments in a project that has seen significant cost and time overruns. From an initial estimate of Rs 9,000 crore, the total capex now stands at Rs 12,300 crore. As of September 2012, MIAL's debt stood at Rs 5,416 crore. "The AERA tariff order has come in last month. This will boost the profitability of the projects, favourably impacting the valuations.

Changi is studying the implications, though they are yet to give their feedback," one of the officials cited above said. The equity valuation that GVK is expecting for its airport business being pegged at Rs12,000-13,000 crore is more than the current market capitalisation of GVK Power and Infrastructure Ltd (GVKPIL), the listed parent company that on Monday stood at Rs2,043 crore.

This is higher than the previous valuation ofRs8,000 crore that was being reported. GVK Airport Developers owns a majority 50.5% stake in MIAL and 43% in Bangalore International Airport Ltd (BIAL). It also has the right of first refusal for a second airport that is being planned for Mumbai. Additionally, the company has won development rights for modernising two Indonesian airports.

In late 2011, officials from Changi Airports were engaged in exclusive dialogue with the GVK Reddy-promoted eponymous infrastructure conglomerate to pick up a 26% stake in GVK Airports Developers Ltd — the holding company of GVK's airport business — for Rs 2,000-2,200 crore. But the proposed partnership did not fructify eventually. A clutch of PE investors such as Blackstone, Morgan Stanley Infrastructure Partners, JPMorgan Asian Infrastructure Fund and SBI Macquarie had also evinced interest. GVK Looking to Repay Debt (sub-head) The urgency to reach a deal, said analysts, is more from GVK's side.

Other than the attraction of having an experienced airport developer on board as a joint venture partner, the key trigger for reviving the talks is its effort to bring down high leverage levels. "GVK is looking to repay Rs 2,500-2,900 crore of short-term debt from the airport vertical alone, and to that extent is seeking equity infusion from potential partners. It is still not clear how much they will dilute, but at least 26% will be on offer to get a strategic partner on board.

Those details are still work in progress," said one of the sources mentioned above. Over the last two years, GVK has increased its equity holding in MIAL from 37% to 50.50%, making it a subsidiary of the company. Similarly, it has hiked its holding in BIAL to 43% from 29%. "These acquisitions from earlier partners like L&T, Siemens etc were done by raising close to Rs 2,500-crore debt. So, as a priority, they need to deleverage and infuse cash," said Deepak Purswani, research analyst with ICICI Securities.

"There is significant stress in GVK's consolidated balance sheet. The power business — another cash guzzler — has also become a huge drag with low plant load factors, limited domestic coal linkages and unavailability of natural gas feedstock from Reliance's KG basin. So they are just not being able to generate much cash flows from other non-airport verticals when the equity requirement is huge.

If they cannot address this urgently, GVK may be forced to go to CDR," warned an analyst from a leading Mumbai-based foreign brokerage on condition of anonymity. As of September 2012, the total consolidated debt of GVKPIL was Rs15,527 crore. According to analysts, the conglomerate's interest payouts are set to balloon toRs1,000 crore by FY14, more than double the FY12 figure of Rs 462 crore.